News Room

Seven Steps To Ending The Recession

Author: Jason Snyman
Date: 2018-09-12
President Cyril Ramaphosa has denied that South Africa is in a real recession. Economists beg to differ. Here are seven things the government needs to do now in order to get us out of this mess.

Recession. It’s only just been announced, but the reality is far more troubling. South Africans have already been feeling the recession for a long, long time. The people are getting poorer. The cost of living has increased while income stays the same and unemployment rises like a great tide.

As South Africa nears the end of the third quarter, we find ourselves sitting at R15.17 to the US Dollar and facing a technical recession. Consumers are tightening their pockets, the price of fuel continues to intensify and President Ramaphosa is beginning to feel the heat. Ramaphosa, however, refuses to accept that the country has entered an economic recession.

The President has called for citizens to remain calm and weather the storm – better days are ahead. At the moment, South Africa is trying to rectify the damaging effects of the weak governance, nepotism and corruption experienced at the hands of Jacob Zuma – while simultaneously dealing with poor performance in the agricultural sector due to late rains and other factors which are out of our control, such as the weakening of the rand and the rise in price of global crude oil.

We are not really in a recession. Economies go through ups and downs,” said Ramaphosa. “It is a reality that all of us as South Africans must accept. We are going to rebound and reach higher levels of growth, I am confident of this.

Economists, on the other hand, aren’t as confident. Let’s take a look at how this recession impacts us.  

Turning Up The Heat On Ramaphosa

Ramaphosa has found himself in a tough position, but nobody thought for a second that succeeding Zuma would be easy. How do we build on rubble? Not only is he dealing with the National Health Insurance and Land Reform headaches, but elections are just around the corner and he’s got to start delivering on his promises in a hurry. This includes securing a lot of foreign investment.

Let’s add to that. The unemployment rate is on the rise – hitting 27.2% in the second quarter of 2018. The future of manufacturing looks bleak, with activity in the sector dipping to its lowest level in thirteen months. The oil price continues its steady upward march, the rand continues to fall – now at its weakest since 2016. State-owned enterprises such as SAA, SABC and Eskom are drowning in debt, putting more and more strain on the Treasury as we continue to bail them out on the taxpayer’s dime.

Oh, and Zuma and company are allegedly concocting a scheme to oust Ramaphosa as President.

Fun and games in the Rainbow Nation.

Ramaphosa has only recently returned from a trip to China, in which several trade agreements were secured. The visit also saw South Africa strike a trade investment deal with the Bank of China to the tune of R15.24 billion.

Despite that bit of good news, economists aren’t buying into Ramaphosa’s call for calm and composure, and many more have criticised his recession-denial. It’s not quite time for hysteria, but serenity isn’t going to solve the problem.

Economists Are Divided On Recession Issue

Economists are pretty much divided on the recession topic. Some, such as Professor Bonke Dumisa, have agreed with Ramaphosa in that South Africans need not worry about the current recession.  

All that the recession means is that we performed negatively in terms of our economic growth during the last two quarters. We have not been doing well in many areas, such as the rand and the petrol price. But, yes, these are externally influenced by people like US President, Donald Trump, when he posts about us on Twitter.

Others have disagreed with the President. Dawie Roodt, for one, has said that it was wrong for Ramaphosa to say that we’re not really in a recession. He defined a recession quite simply as a slowdown in economic activity, and said that if South Africans are growing poorer, and times are becoming more and more difficult, then it means that we’re in a recession.  

Issues such as the rand or fuel price, influenced by external factors, can only have so much of an impact. The majority of our problems, in South Africa, are entirely self-inflicted, and we can blame our woes on the endless list of government shortcomings.

We are in trouble,” said Roodt.

Further still, the DA National Spokesperson, Solly Malatsi, has said that even though Ramaphosa has called for calm, these assurances of a brighter economic future don’t do anything to rectify the unemployment, investor confidence or quality of life issues that South Africa is currently facing.

What Can Be Done?

DA leader, Mmusi Maimane, agrees with Roodt in that SA’s economic turmoil is entirely home-grown.

Speaking to the media earlier this week, Maimane blamed the mayhem on Zuma’s mismanagement and terrible policies, and suggested the following decisive steps be taken in order to lift us out of recession before further damage can be done.

  1. Scrap reckless economic policies like the proposed nationalisation of the Reserve Bank and the undermining of property rights through expropriation without compensation;
  2. Announce the privatisation, or part privatisation of SAA, and split Eskom into separate power production and distribution businesses
  3. End Eskom’s monopoly and allow cities to purchase directly from independent power producers, increasing competition and lowering costs;
  4. Introduce a fiscal austerity package to contain current spending and stabilise national debt at 50% of GDP. Commit to funding any further revenue shortfalls by cutting wasteful expenditure, not through new taxes;
  5. Cut the size of the cabinet to around 15 ministries – from 35;
  6. Exempt small businesses employing fewer than 250 employees from complying with restrictive labour legislation, other than the basic conditions of employment;
  7. Immediately pay all outstanding invoices owed to small businesses from National and Provincial Governments, amounting to a fiscal stimulus for small businesses of R20.7 billion and R7.1 billion respectively;

Maimane believes that the above will nip growing economic uncertainty in the bud and signify true change.

Without growth, revenues slide, jobs disappear, investors flee, poverty grows. It is then that the soil is most fertile for the simplistic promises of populist demagogues,” he said. “That is why we cannot afford to let this recession persist. We must take these seven bold steps now to get South Africa growing again.